CROATIA – Water Services Sector Council for Water Services Vladimir Šimić, vice-chairman Lisabon, 8 October 2018

Water services sector (1) Population (Croatia) – 4,17 M Surface area – 56590 sq.km. Annual turnover (in sector) – EUR 495 M Fragmented WUTs (1990 - 104, 2015 – 156, 2018 190) apx. 8.200 employees in WUTs Water prices bellow 1,8% of NDI of a household, before EU investments Business customers – 43% higher prices than households, in average Water services sector (1)

Water services sector (2) Unaccounted for water (2009 - 46% u 2009, 2017 – over 50%) Water supply – available for 94% of inhabitants More than 200 small unregulated water supply systems (in settlements up to 3500 inhabitants) Waste water collection - 53% of inhabitants Waste water treatment - 44% of inhabitants Water services sector (2)

Key players Water utilities (190) -188 public, 2 private Cities/municipalities (555) Ministry of Environment and Energy Croatian Water – national water management agency – resources management, technical assistance and co-financing of local water and waste water projects Council for Water Services – independent regulator Key players

COUNCIL FOR WATER SERVICES 2010. under the act of Parliament (Water Act of 2009) Independent state body Ad hoc body (in reality) Permanent body (under the Water Act am. of 2013), no governmental decree on organisation has been passed Main objective – to prevent under-pricing or over-pricing where in place ( Water Management Strategy of 2008) Proposes to Government – Water Tariff Methodology (decree of 2010) Established

Appointment and Composition 9 councillors; to freely elect their chairman and vice-chairman 5 yr. term appointed by the Parliament on the Governments proposal accountable to the Parliament reporting (annually) to the Parliament Ministry (of Environment and Energy) – administrative and technical assistance No. of professional staffers: 1 Annual budget – covers monthly fees of the councillors Appointment and Composition

Consumer’s bills 5 components Water Tariffs (WUTs revenue; M&O) Fixed - Full Variable - Social 2. VAT (13%) 3. Development Charge (WUTs revenue; ND&R) 4. Water Abstraction Charge (Croatian Water’s revenue; inter alia ND&R; reallocation to local water projects ) 5. Water pollution Charge (Croatian Water’s revenue; inter alia ND&R; reallocation to local water projects ) (Bulk water prices – out of consumer’s bills) Consumer’s bills

Economic regulation (1) Water tariff STEP 1 – Local regulation water utility sets the tariff + mayor’s approval = tariff becomes effective STEP 2 – National regulation - Ex post (subsidiary) Suspension of illegal tariff Interim tariff Economic regulation (1)

Economic regulation (2) Development charge Step 1 – Local regulation (DC- tariff) Water utility proposal Local council passes (or not) Step 2 – National regulation (if passed) Regulator proposing suspension of illegal DC- tariff to the Ministry Ministry suspends DC-tariff (or not) Step 2 – National regulation (if not passed) Regulator to expand payment obligation to cities/municipalities not enacted DC – tariff, if DC has been paid at 50% of C/M (measured in water volume) Regulator to level DC tariff at the service area Economic regulation (2)

Economic regulation (3) Bulk water tariff Step 1 Contract between WUTs (if not) unilateral decision by the WUT – seller Step 2 Dissatisfied party to start a litigation + to apply for an interim injunction Step 3 Regulator issues (and changes) interim injunction with temporary tariff Economic regulation (3)

Average values Water consumption Per capita - 131 litre/day , 3,93 m3/month Household – 2,8 members Per household - 11 m3/month Water price (all 5 components) Households 2,08 EUR/m3 Businesses 2,96 EUR/m3 Consumer’s bill Per capita – 8,19 EUR/month, 98,35 EUR/year Per household – 22,95 EUR/month, 275,45 EUR/year Average values

Benchmarking Water Act of 2009, Government Decree of 2010 6 areas 1. Coverage of water services 2. Volume of water services 3. Volume of water supply (invoiced/non-invoiced, breakages, non-complying samples etc.) 4. Quality of service 5. Costs 6. Debt and Capital KPIs 46 (3+7+2+15+17+2) Results Collection – YES, analysis – NO, verification - NO Croatian Water initiative of 2014 - to reform benchmarking (new KPIs, new definitions, training for WUTs, online entries…; not accepted so far) Benchmarking

Achievements Universal introduction of variable and fixed tariff Universal introduction of social tariff (not more than 60% of full tariff) Comparable cost structure Financial stabilisation in sector profit 5,6% -total, 0,79 – public sector losses 0,67 total and public sector (30% of WUTs) 4/5 of water volume sold by 25 WUTs all distortions occur within 1/5 of sold water Achievements

Challenges WUTs merger new service areas (190 to 38) „one utility per service area” non-profitable utilities water prices control – from „pump up” – overall costs control; from „price cap” to „revenue cap” model water price – not to exceed 3,6% NDI Challenges

Thank you